Vietnam facing challenges ahead as GDP growth uncertain in 2018

Vietnam finally gained a high GDP growth rate of 6.81 percent in 2017, which was higher than the targeted 6.7 percent which many analysts thought would be unattainable. Will it occur again this year?

Vietnam gained the high GDP growth rate of 6.81 percent in 2017

Luu Bich Ho, former head of MPI’s (Ministry of Planning and Investment) Institute for Development Strategy, said he can see improvement in growth quality.

The structural changes in agriculture and the policy on agriculture development have helped created high-quality sustainable growth. The biggest change in industry is the reduced reliance on mining.

The structural changes in agriculture and the policy on agriculture development have helped created high-quality sustainable growth. The biggest change in industry is the reduced reliance on mining.

Eugenia Victorino, an economist at Australia & New Zealand Banking Group in Singapore, said on Bloomberg: “We’ve seen Vietnam’s coming of age this decade with its rapid transformation to a manufacturing powerhouse.” “The diversification of products and markets provides a tailwind to exports. We are very bullish on growth, though we remain cautious about structural issues of legacy bad debts,” the economist said.

Experts believe that Vietnam will continue to gain a high GDP growth rate this year.

Standard Chartered has predicted 6.8 percent growth rate for Vietnam in 2018, to be driven by strong manufacturing activity.

The manufacturing sector is also expected to hit double-digit growth in 2018 with support of FDI (foreign direct investment) inflows and greater demand for electronics globally. The exports are expected to increase sharply by 20 percent.

Meanwhile, VEPR (Vietnam Institute for Economic and Policy Research) has predicted a growth rate of 6.65 percent for 2018.

However, the institute also pointed out problems which could be a hindrance for growth. One is that the driving force for economic growth doesn’t come from productivity improvement.

The the reliance on the world economy and foreign invested economic sector will also bring risks. Vietnam’s productivity is just equal to 1/14 of Singapore’s, 1/6 of Malaysia’s and 1/3 of Thailand’s.

The advantage of a cheap labor force will no longer exist. The budget deficit and public debts are at high levels. In 2017, the big excess of exports over imports from the foreign invested economic sector helped Vietnam in gaining a trade surplus.

However, that has sparked worries about the sustainability of economic development because it shows the reliance of the national economy on foreign invested enterprises.

VEPR emphasized that Vietnam needs to use more internal resources to obtain growth, commenting that the dependence brings risks to the economy, especially when the world in 2018 is expected to meet uncertainties related to geopolitics and protectionism pursued by some large countries.

Le Dang Doanh, an economist, also commented that the domestic economic sector only makes modest contributions to the economy, while GDP growth depends too heavily on the foreign invested economic sector.